Any reason to not open an HSA account?

[flunky nassau]

Hi,

I was just researching HSA's (Health Spending Accounts) and can't find any down sides to them. Why isn't this mentioned alongside 401K's & Roth IRA's as a golden trio of accounts to save for retirement?
It gets a triple tax benefit & some have low-cost Vanguard funds to invest in; and once you retire, you can spend it on all your many health expenditures that I'm sure 65 year olds have.
The only requirement you need is to have a high deductible health plan, which I have.

Anyone have experience with this? I'm 36 now.

 

[Ken g6]

It makes your taxes a little more complicated. There was also something about needing to keep the same health plan for a year after deposits or something. It was confusing. Anybody know what that's about?

 

[SSSnail]

You can't open one if your company doesn't offer it? That's what I know anyways.

 

[Fritzo]

Yeah, you can only use one if you have a high deductible insurance plan.

 

[flunky nassau]

You can't open one if your company doesn't offer it? That's what I know anyways.

Nope, HSA's are through "administrators" independent of your employer, so you can take them with you as you change jobs. Here's one of the higher rated ones with the Vanguard funds: http://healthsavings.com/

 

[flunky nassau]

It makes your taxes a little more complicated. There was also something about needing to keep the same health plan for a year after deposits or something. It was confusing. Anybody know what that's about?

I would think that since the capital gains grow tax-free, there are no complication other than to declare it no?

 

[bbhaag]

It's complicated too setup. If your employer offers it you're set. If you go at it on your own...its complicated.

 

[brianmanahan]

the method you described - putting money tax-free into HSA, letting it grow for 30 years in mutual funds, then getting it out tax-free - is an awesome deal if it works out.

there are several complications though:

- the HSA has to allow mutual fund investments. a lot of them don't.
- techinically, to take the money out, you have to be able prove you spent it on health care. this means saving health care receipts for decades.
- if you switch jobs and get non-HDHP insurance, you can't contribute anymore.

i started using an HSA for retirement savings a couple years ago, but then switched to a job with non-HDHP insurance, so i was only able to get a couple grand into it. ah well.

but i would definitely still use the HSA for retirement savings if i could.

 

[dank69]

Yeah the HSA is basically the best retirement account available. Pay your medical bills with a credit card that gives rewards and throw all your receipts in a shoebox. 40 years from now when you want to withdraw money just submit some receipts and enjoy your tax free earnings.

 

[TridenT]

the method you described - putting money tax-free into HSA, letting it grow for 30 years in mutual funds, then getting it out tax-free - is an awesome deal if it works out.

there are several complications though:

- the HSA has to allow mutual fund investments. a lot of them don't.
- techinically, to take the money out, you have to be able prove you spent it on health care. this means saving health care receipts for decades.
- if you switch jobs and get non-HDHP insurance, you can't contribute anymore.

i started using an HSA for retirement savings a couple years ago, but then switched to a job with non-HDHP insurance, so i was only able to get a couple grand into it. ah well.

but i would definitely still use the HSA for retirement savings if i could.

And with Bernie being elected, we'll all be on socialized healthcare in a few year anyway! HSA savings vaporized! Bammo whammo!

 

[ultimatebob]

Yeah, you can only use one if you have a high deductible insurance plan.

Yeah, and if you ever switch back to a traditional insurance plan, it can make using your HSA funds a pain in the ass. They'll start tacking on monthly service fees to maintain your balance, and it might be tough to find qualified expenses for spending that money.

I ended up giving up, and withdrawing my remaining balance with the 15% penalty. It was a better option than watching it get slowly eaten up by HSA fees over several years.

 

[KB]

You should maximize your contributions to your 401k (17000) and Roth IRA (5500) before contributing to a HSA for retirement. Most of us cant do this so looking to an HSA doesnt make sense for most people.

 

[kranky]

A couple reasons that an HSA is not necessarily a slam-dunk.
1. Decades later you have accumulated a ton of money but your health care expenses are low - the money is trapped.
2. As ultimatebob points out, maintenance fees on accounts. It could turn out that today's low-cost institutions choose not to handle HSAs at some point and the only options are costly ones.
3. The sheer logistical nightmare of accumulating decades of HSA-eligible receipts. Keep in mind how many places print receipts on thermal paper that will become a blank piece of paper in just a couple years. I guess you can scan them and try to manage that.

 

[blinblue]

A couple reasons that an HSA is not necessarily a slam-dunk.
1. Decades later you have accumulated a ton of money but your health care expenses are low - the money is trapped.
2. As ultimatebob points out, maintenance fees on accounts. It could turn out that today's low-cost institutions choose not to handle HSAs at some point and the only options are costly ones.
3. The sheer logistical nightmare of accumulating decades of HSA-eligible receipts. Keep in mind how many places print receipts on thermal paper that will become a blank piece of paper in just a couple years. I guess you can scan them and try to manage that.

But at age 65 you can withdraw at no penalty (you will be paying regular taxes on it though). So an HSA is at least as good as a traditional IRA (tax free going in, taxed coming out after age 65), but if you pass medical expenses through the money is tax free both in and out. And even better, if the health insurance is through your employer you can contributions taken out of your salary and avoid payroll taxes, which makes it triple tax advantaged. It really is pretty awesome if you can get it.

The downsides are that you'll likely be paying more fees than with a IRA, there just isn't as much competition for HSA administrators. Though there are a number of decent options out there including some free accounts (though usually without any access to mutual funds, or if they do, they have higher than average expense ratios)

As an example of a fee-free HSA administrator, https://www.lmcu.org/banking/savings/savings_hsa.aspx
No fees (though no investment options), 2% gaurenteed interest

 

[kranky]

But at age 65 you can withdraw at no penalty (you will be paying regular taxes on it though). So an HSA is at least as good as a traditional IRA (tax free going in, taxed coming out after age 65), but if you pass medical expenses through the money is tax free both in and out.

I agree that's how it works today. And if I was in my 50's I'd be pretty confident that's how it would work for me at age 65. I am not 100% confident that 30 years from now it will still be that way. I have a suspicion that means testing will gather more support over time and HSAs could be an easy target. 401ks have too many participants to mess with. Social Security is the third rail of benefit programs - touch it as a politician and you die. But with comparatively few people in a position to use HSAs, who knows if way down the road those tax benefits are curtailed and I would not want to have tons of money in one in hopes I can use it decades from now under the same rules.

 

[highland145]

I assumed that I would build $$ in my HSA....and we know what assumed stands for. High deductible plan and actually needing some medical care means that the HSA won't have any $$ in it. 2014, a effed up year, $12K medical out of the HSA. 2015, still $6K out of the HSA...mostly because I have a $10K deductible HSA approved plan. Had a CT last month...$3300...contract adjusted rate is still $1700. The 16 stitches I got 2 years ago was another $1700. Sounds like the the fam and I are on our death beds but we're all healthy. Maintenance HBP for me.

Anyway, start it but don't expect to retire on it.

 

[brianmanahan]

Sounds like the the fam and I are on our death beds but we're all healthy.

sounds like you need to live in a bubble. like the bubble boy, but a whole family.

 

[highland145]

sounds like you need to live in a bubble. like the bubble boy, but a whole family.

Pshaw, that would interfere with my posts.

It's crazy how much simple things cost. $3300 for a ct? Paid $800 ish for 2 x-rays of the kid's arm at the ER.

Too bad congress effed up a good opportunity to fix some of this but they exempted themselves from the problems. Dickheads.